Thursday, September 17, 2015

The Schmalbeck Non-Hail Mary

by Neil H. Buchanan

My annual contribution to Jotwell: The Journal of Things We Like (Lots) is now up on the journal's website: "Using the Tax Code to Help Universities Put Big-Time College Sports In (Some) Perspective."  There, I review an excellent recent article by Professor Richard Schmalbeck of Duke Law School: "Ending the Sweetheart Deal between Big-Time College Sports and the Tax System."  (Readers can find the previous Dorf on Law posts in which I describe (and link to) my previous Jotwell contributions here: 2014, 2013, 2012, 2011, and 2010.)

Professor Schmalbeck's article offers a modest approach (hence the "non-Hail Mary" in the title of this post) to reducing the growing, problematic influence of football (and, to a much lesser degree, men's basketball) at major American universities.  He focuses on two aspects of federal tax law: (1) the indefensible practice of not requiring universities to pay the Unrelated Business Income Tax” (UBIT) on their sports-related profits, and (2) an almost comical allowance for a partial deduction for barely disguised added charges for admission to games.

Professor Schmalbeck shows that both of those provisions are distortions of the tax law, and he emphasizes that undoing those provisions would enhance the tax code's "coherence and fairness."  My main concern, by contrast, is with the deleterious effects that such provisions have on universities.  This is not to say that I am uninterested in adding a bit of coherence and fairness to the tax code, nor that Schmalbeck is uninterested in how sports mania has distorted universities' priorities.  Our difference is only a matter of emphasis.

In any event, one of the principal reasons that I chose the Schmalbeck piece as the subject of my annual Jotwell contribution is that he is not trying to solve the problems of college sports with a single grand policy proposal.  He convincingly suggests that the way to tame this behemoth is by putting it on a diet, and those two tax provisions are inappropriately pushing large amounts of money into the maw of college sports.

Interested readers will find more detailed arguments in the Jotwell piece, which is not lengthy (about the same number of words as a typical post on this blog).  In the remainder of this post, I will briefly comment on a recent article in The New York Times profiling the president of the University of Notre Dame, Rev. John I. Jenkins.  Despite some unnecessary snark by the writer (see below), the piece is definitely worth reading.

In this context, I must begin by pointing out that I generally find Notre Dame's football program to be highly objectionable, though mostly as a matter of rooting interest.  However, beyond simply not being my team (and occasionally beating my team over the years), my objective problem with Notre Dame is the unbridled arrogance that drips from the program.  A few years ago, for example, the school's athletic director actually said in a press conference that "college football is better off when Notre Dame is good," or words to that self-flattering effect.  In any event, this is not a program or a university to which I typically point and say, "Yeah, I like them!"

Having dutifully noted all of that, however, I must admit that President Jenkins is a truly admirable leader in college sports.  In the Times article, he says what needs to be said about the importance of education as an essential part of college sports.  The man has his priorities straight.

Importantly, Jenkins points out that the money from big-time football is not essential to running his university.  Even though Notre Dame is one of the very few universities that actually does make money from its football program -- and importantly, that money is used to support a full slate of womens' and mens' sports programs that do not generate revenue, witht the remainder going into the university's general fund to support financial aid -- it is still an $80 million drop in a $1.4 billion annual bucket.  A bit less than six percent of the university's operating budget is not trivial, of course, but losing it would be very manageable.

Although many people find it unthinkable, therefore, President Jenkins is saying quite clearly that even a school like Notre Dame could at some point decide that the tradeoffs of big-time college sports have finally become unacceptable.  He describes an unlikely, but still imaginable, future in which the other football factories go toward a fully professionalized approach to football and men's basketball, and Notre Dame opts out (presumably with some other schools that manage to keep their priorities straight).  Yes, this is a negotiating strategy, because Jenkins is hoping to prevent the other powers from making those fateful choices that he (and I, obviously) strongly oppose.  For Notre Dame's president to say, "Yes, we are the face of college football, but we would refuse to be the face of that kind of pro football league," is enormously important.

The writer for the Times generally gave President Jenkins a respectful hearing.  Even so, his point of view (favoring professionalizing college sports) crept into the story.  For example, at one point in the article Jenkins offers a simple response to the possibility that courts could force universities to pay players whose jerseys are sold to the public.  (This is part of the unrelated business income tax story that Professor Schmalbeck describes.)  The university would simply sell jerseys without numbers on them.  Even so, the article ends by noting that the (subsequently injured) starting quarterback's jersey is "available for sale in the bookstore," as if that is somehow an indictment of everything that went before.  Yeesh.

1 comment:

David Ricardo said...

The idea that Notre Dame and other big time athletic schools would de-emphasize revenue sports and return to what should be (but is not)their primary mission, education, is admirable in the extreme. It is also unrealistic in the extreme. And the fastest way for any politician to destroy a career would be to come out for taxation of sports revenue under UBTI.

Today it is money, not power, but money that corrupts. And money has corrupted higher education, Exhibit A being my alma mater, UNC Chapel Hill. The penalty for making academics a joke at Chapel Hill, well we're still waiting but we do know the reforms that will take place because of that scandal. Nothing.